Cryptocurrency and its effects in Nigeria


When the central bank of Nigeria (CBN) ordered financial institutions to shut down accounts trading cryptocurrency, all hell broke loose as Nigerians heavily criticised the apex bank. CBN's Deputy Governor, Adamu Lamtek, commenting on behalf of the bank's chairman, Godwin Emefiele, was quoted saying the directive shouldn't be construed as an outright ban but a reiteration of an already existing prohibition of cryptocurrency transactions. However, his statement did little to convince Nigerian crypto lovers. Therefore, this article will explain what you need to know before investing in Bitcoin, Dogecoin, Litecoin, Ethereum and other cryptocurrencies.

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Africa's largest Bitcoin market

Nigeria's economy is Africa's largest; it is the most populous country on the continent, and its population is among the youngest in the world. According to, which combines data from crypto exchanges Paxful and LocalBitcoins, Nigeria has become the continent's largest Bitcoin market by trading volume. However, as a result of the health crisis, remittances to Nigeria plunged. With them, the Naira, the country's local currency, dropped severely due to COVID-19 restrictions and plummeting crude oil prices.

Several Nigerian banks reportedly restricted offshore debit card transactions and restricted cash withdrawals in 2020 as part of an effort to keep scarce US dollars inside the country. Due to the deteriorating purchasing power of Naira last year, Bitcoin and other cryptocurrencies increased in popularity as a hedge against this, as well as a way to move money easily between countries.

Bola Williams, a 33-year-old software developer, said he could bypass his naira debit card's $100 limit and conduct all his transactions seamlessly; hence, "the crypto ban has only compounded the problem".

Crypto appetite, however, does not appear to have diminished.  According to, bitcoin trading volumes on Paxful and LocalBitcoins exceeded $9m in the seven days ending March 8, up from approximately $7.55m in the seven days ending February 8. It appears that despite CBN directives, Nigerians are determined to make use of cryptocurrencies for increased earnings, especially since inflation is on the rise and foreign exchange liquidity is limited. KuBitX co-founder Eric Annan, who founded the cryptocurrency trading platform, told Quartz that the ban would never stop a ship with an already left port.

As for the CBN directive, Annan believes it served only to amplify Bitcoin's popularity and spark crypto sceptics' curiosity. He said a generation that has created a significant difference to the global GDP [gross domestic product] due to the internet cannot be stopped by any single government.

Political pushback

There was also pushback from some Nigerian politicians against the CBN directive. Nigeria's Senate summoned CBN Chief Emefiele after the order was released, seeking to explain cryptocurrencies' economic and security threats. Emefiele described the role cryptocurrencies play in money laundering, terrorism financing, illicit arms purchases, and tax evasion during his February 23 briefing before the Senate Committee on Banking. Emefiele argued that cryptocurrency was not a legitimate currency because it was not created by the central bank or backed by it. Therefore, he said, "cryptocurrency transactions should not be carried out through the Nigerian banking system since it has no place in our monetary system".

Many crypto proponents criticised this assessment.

Despite whatever reasons led to this move, Chimezie Chuta, the Blockchain Nigeria User Group coordinator, believes a solution could have been reached through dialogue and collaboration. According to him, by stating that cryptocurrencies are not supposed to be money, one neglects money's origins, purpose, and components. Furthermore, he noted that cryptocurrencies are a form of property or commodity and thus, should not be considered illegal.

The Vice President of Nigeria, Yemi Osinbajo, also called on the CBN to take a more lenient stance towards cryptocurrency transactions. He recommended taking steps to remedy serious concerns "without necessarily killing the goose that lays the golden eggs".

"We've seen disruption in many other industries", he said, "which results in efficiency and progress". Public reaction to the letter was entirely unexpected, as many feared an adverse impact on Nigeria's burgeoning cryptocurrency market and the fintech industry.

How can cryptocurrency transactions be prohibited?

IN RESPONSE TO ITS EARLIER DIRECTIVE, a CBN press release was issued on February 7, 2021, explaining why banks and financial institutions prohibit cryptocurrency transactions.

CBN's statement noted in part that unlicensed and unregulated entities issue cryptocurrencies, which could not be used as legal tender in Nigeria. Furthermore, it pointed out that cryptocurrency anonymity is a problem. 

According to the central bank, anonymity and a lack of KYC (Know Your Customer) made cryptos potentially vulnerable to illegal uses such as money laundering and terrorism financing. Additionally, it cited cryptocurrencies as potentially threatening financial systems in other countries due to their volatility.

The Effect on Cryptocurrency Trading in Nigeria

Over the last five years, Nigeria has traded over $500 million worth of Bitcoin, making it the second-largest Bitcoin market in the world, and, understandably, the CBN's directive on cryptocurrency transactions will affect the crypto market in Nigeria since it essentially prevents traders from purchasing cryptocurrency with their credit/debit cards issued by Nigerian banks or receiving proceeds from cryptocurrency sales through exchanges that facilitate trading cryptocurrency in Nigeria.

The small number of exchanges that have opted to use peer-to-peer trading have found a way around this restriction since they allow cryptocurrency to be purchased or sold from people rather than exchanges. Therefore, exchanges are no longer required to maintain settlement accounts at Nigerian banks.

Banks have begun identifying and deactivating the accounts of individuals transferring money from/to cryptocurrency exchanges in response to the CBN's directive. As a result, individuals affected by this change are unsure whether their accounts will be reopened in the future. In addition, Nigerians cannot use their debit cards to directly purchase Bitcoin and other digital assets with their cards due to the restrictions imposed by CBN. Thus, they will have a more challenging time buying and selling Bitcoin.

Besides the foreign cryptocurrency sector, the African continent's largest cryptocurrency sector will also be affected by and heavily scrutinised if a total ban takes effect. It was predicted that startups in the digital asset sector would achieve even greater success in 2021 after considerable achievements in previous years. 

In fact, analysts projected in early 2021 that investments and acquisition opportunities will arise in Nigeria. However, in light of the current CBN regulations, such predictions and plans will be on hold for the moment as cryptocurrency startups grapple with the scepticism provoked by the new policy.

Nigeria is one of the leading players in this market in Africa. The CBN may have influenced other countries on the continent to follow Nigeria's lead by stopping financial institutions from processing digital assets-related transactions. Ghana and Kenya are among the countries on the continent where digital assets are not considered legal tender because regulating them is difficult. In light of the restriction by the CBN, many of the countries where Bitcoin adoption is high, such as South Africa, are probably watching the developments in Nigeria. Most likely, other African countries with high Bitcoin trades will follow suit very shortly. 

Nigeria's crypto ban has done little to stem demand for Bitcoin

The West is riding high on cryptocurrencies, while some developing economies are cracking down. Goldman Sachs reports that investors are increasingly interested in bitcoin, while billionaires tout joke coins on popular sketch comedy shows.

However, some people believe that the days of cryptocurrencies are numbered even in the developed world. For example, Tesla recently said it would no longer accept bitcoin as payment, citing the environmental cost of bitcoin mining (the number of carbon emissions generated by mining remains in dispute). 

A more immediate threat is the emergence of central bank digital currencies (CDBCs). Citizens are assured that a national institution backs their digital cash, and governments are granted almost total control over monetary policy.

According to one survey in April, some 86% of the world's central banks are exploring the possibilities of CBDCs. While the Bank of England is currently exploring the possibility of creating the world's first digital currency, the US is testing the waters for its electronic currency. Other nations, including Sweden and China, have moved beyond the experimental phase, with both countries conducting tests involving their electronic currencies. In addition, a digital currency has been introduced in the Bahamas.

How's the Nigeria Fintech Ecosystem?

Nigeria's Fintech industry has experienced robust growth throughout the past few years and has attracted new foreign investors. According to the West African Startup Decade Report, Nigeria's booming Fintech sector attracted more than $600 million in foreign investments from 2014 to 2019. 

Africa raised $490 million in total by tech startups in 2019. These numbers represent 25 per cent of that sum. As for the first quarter of 2020, Fintech companies raised around $55 million from foreign investors.

Most Fintech companies in Nigeria provide cryptocurrency remittance services on their platforms that allow users to buy bitcoins and other cryptocurrencies, save and invest, facilitate payment transactions, and convert digital assets into Naira, among other things.

Thousands of people turn to cryptocurrency to facilitate cheap and fast transactions in a country where foreign exchange policies are stringent, and transaction fees for transferring money are exorbitant. The emergence of crypto-based solutions for old financial challenges fosters a new wave of fintech companies like Buycoin, Piggyvest, Risevest, and many more. These providers facilitate millions of dollars in transactions daily.

What's the reaction of the FinTech Sector?

All Fintech platforms across the country responded immediately to the Central Bank's latest directive. In a series of announcements, leading financial companies offering cryptocurrency processing options on their platforms, such as Flutterwave, Buycoin, and Piggyvest, informed their customers that Deposit Money Banks (DMBs) were no longer supporting virtual accounts. 

In addition, they announced that they would no longer be processing cryptocurrency transactions via naira deposits because the CBN ordered them to disable the option.

People panicked as they scrambled to withdraw their funds from these platforms after hearing these announcements. This is despite continued assurances from these companies that their client's monies are protected.

A setback for the Fintech sector

While the Central Bank seeks to protect all of its regulated entities, including Fintechs, under its regulation, these entities have reacted negatively to the reserve bank's stance on cryptocurrencies. CBN's directive, they claim, will have a detrimental effect on the country's Fintech sector, especially crypto-based exchanges. 

According to some experts, the latest clampdown on digital assets could lead to a loss of foreign investment for the Fintech sector. Adeleye Afeez, a blockchain analyst, explained in an interview that while global companies embrace cryptocurrencies, unstable government policies could threaten investors' confidence and venture capital firms in funding and investing in innovations in the region.

Based on Fejiro Agbodje's analysis of the potential impact of the circular on Fintech companies, he says the core business operations of crypto-based Fintech platforms have been disrupted. The Fintechs have said they cannot accept money from customers who want to purchase bitcoin using Naira. Likewise, users who want to withdraw Naira as well cannot be paid out. According to him, there will be no cryptocurrency trading involving Naira, but only crypto exchanges.

Experts also believe restricting cryptocurrency transactions by regulated entities is counterproductive. They warned that it could lead to a mass exodus of companies to other countries. 

So, African countries would receive potential revenue from this. The Federal Government strives to diversify revenue streams across the country, but this goes against that effort.

Are there any positives?

Crypto-based Fintech companies have redesigned their operations to mitigate the impact of the Central Bank's directive by implementing P2P models on their platforms to connect traders directly. Individuals usually conduct P2P trades without intermediaries or third parties. By providing this service, Fintech companies can serve as an escrow service to coordinate these P2P transactions.

In essence, this means that users can now buy bitcoins and other cryptos directly from exchanges without going through a bank. In addition, the recent clampdown on crypto opens up opportunities for Fintech innovation. These present conditions allow innovators to develop new crypto trading models. 

Researchers can improve existing P2P channels so Nigerians can engage in seamless and secure international and domestic transactions. For example, Naira-pegged cryptocurrency, NGNT, has already been promoted to circumvent the CBN's restrictions.

No matter how the decision goes, time will tell how CBN's move will affect the Fintech industry.

Nigeria may revisit the ban as new investors, use cases rise.

Nigeria's present disposition on cryptocurrency may not stand for too long. Crypto transactions are adjusting trade activities in almost all world economies. New investors and valuable use cases are also being attracted to the means of payment. A digital currency, also known as crypto, is a means to pay for goods and services using a digital key.

Online transactions are secured with a strong cryptographic ledger. However, speculators at times drive the prices of these unregulated currencies skyward, as much of the interest in these currencies comes from trading for profit. A recent Nigerian ban on crypto payments through local banks warns users of the risks and uncertainty that can cripple an economy.

The crypto market could potentially benefit from a deal of this kind. Recent company developments have included creating a new business unit devoted to blockchain, cryptocurrency, and digital currencies. Additionally, PayPal recently acquired Curv, an Israeli-based crypto-security company, as a part of its expansion in cryptocurrencies and digital assets.

A new group will be formed with Curv. A cloud-based security technology provider, Curv was established in 2018. Curv, with its acquisition by PayPal, gains access to over 325 million PayPal users worldwide while expanding into a global market. The crypto market has not only been enriched by PayPal but by several investors.

Tesla announced just a few days ago that it is now accepting Bitcoin for vehicle payments. In an interview with Motley Fool, Tesla chief executive Elon Musk said that it would be possible to buy a Tesla vehicle using bitcoin before the end of the year. Last month, the automaker revealed that it had purchased $1.5 billion worth of bitcoin.

Also, in February, global music icon and rapper Jay Z and Twitter CEO Jack Dorsey announced that they were putting together 500 bitcoin, which are currently worth $27.2 million, into an endowment called BTrust. According to Dorsey, several blind irrevocable trusts will be established to fund development projects in Africa and India.

A tweet by Coin Center's director, Jerry Brito, revealed the donation of $1 million by Dorsey to the think tank. Furthermore, Visa, a backbone provider for financial services, has announced support for cryptocurrencies by launching a crypto-linked visa card. 

At the start, will be the project's partner, but other exchanges will be added later. This embrace of digital currencies for transactions by these three industry giants, PayPal, Mastercard, and Tesla, gives a good indication of the market impact these currencies will have.

Besides PayPal, Mastercard and Tesla have also started accepting crypto. Jonathan Habicht, Founder of Moon Rock Capital, a blockchain investment advisory company, said, "the new development [acceptance of cryptocurrencies] showed great steps and put me bullish on payment use cases". 

Data shows that Visa is used relatively widely in Yemen, and digital currencies are likely to be used for online transactions involving a crypto visa card. On the other hand, if Nigeria does not relax the restrictions on crypto transactions, Visa, which has a significant partnership with several Nigerian banks (with 7.9 million people out of 41.89 million ATM cardholders), will struggle to promote new crypto cards in the country. 

Alex Victor

Alex Victor is an analyst at HotNaija

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